Top five things your parents didn’t tell you before you left home

Moving out of home is your first major step to independence. It can be exhilarating and empowering, but daunting too. You’ll face new challenges – especially when it comes to finances.

A recent Melbourne Institute study of Australians aged 16-23 found that many encounter serious money struggles when they leave the nest, with one in 10 falling behind with rent or mortgage payments, more than 10 percent unable to afford phone or power bills and one in 10 skipping meals daily because they were broke. If you plan smart and avoid the pitfalls, your move can be smooth and successful. Here’s what you need to know to make a grand entrance into the adult world.

Budgets are your BFF

Before you move out, draw up a detailed budget. If it’s the first time you’ve done this, use a helpful app such as ASIC’s MoneySmart budget planner. Budgeting is a smart habit to adopt for life, and can help you achieve your goals faster while living within your means.

“It’s important young adults understand the impact of spending beyond your means and the consequences of carrying debt,” says ASIC’s Suzan Campbell, Senior Manager, Financial Literacy. “The best way to take control of your finances is to prepare a budget to help understand where your money is going and calculate costs, such as utilities, insurance and other expenses.”

She adds: “This will also show if you’re spending more or less than you can afford and help direct money where it matters most.”

If you’re working, Campbell recommends taking a good look at your salary package. “When entering the workforce, be aware of entitlements and deductions, including superannuation,” she says.

Another good habit to adopt now is paying your bills and rent on time, to avoid a bad credit rating. If you want to buy a home later on, someone will be looking at how you managed financially.

Make sure sharing’s fair

House shares are a great way to reduce living costs, but can be a minefield of potential conflict. If you establish good ground rules at the start, your place will be more Friends, less Game of Thrones.

Sydney renter Justin Lee says he learned the hard way to ask potential housemates the tough questions. “My first house share after I moved out of home was pretty disastrous,” he says. “I was studying, but shared with two people working in the hospitality industry who worked nights. Our lifestyles clashed; they’d come in from night shifts at 2 or 3AM and play music to wind down, while I was trying to sleep for an early start the next day.

“We had different attitudes to cleaning and bills, too,” he says. “These were subjects I didn’t tackle in our first meetings because we all seemed to get along fine. But you can’t take chances when it’s about your living space. Now I know to ask about lifestyle and money habits, even if that feels awkward.”

Suzan Campbell agrees. “When house sharing, it’s important to set ground rules with your flatmates before you move in. There are a number of issues you’ll need to consider, including how you will pay the bills and share the cost of rent and utilities. You’ll also need to think about how you’ll handle household chores and paying for other shared costs, including internet and food,” she says.

High energy can hurt

Bill shock isn’t just about your mobile data. Hefty energy bills can be a nasty surprise and a source of conflict between housemates. It’s worth researching energy costs as much as possible before you choose your new home, as energy charges can vary between suburbs and the energy provider your parents use might not have the best deal for you. Check for offers for new users, such as waiving connection fees, and take time to speak to an energy comparison expert to find the most suitable plan for your needs and budget.

If you have a formal concession card (such as a health care card) make sure you speak to your energy provider about concession discounts. Also, many energy providers offer no-fixed term contracts – ideal if you are likely to move again soon and don’t want to commit to a two-year contract.

At the start, decide with your housemates who will be in charge of paying the bills and aim to spread responsibility around. “We recommend that the rental agreement and utility bills are in the names of all tenants to ensure all are equally responsible for these costs,” says Suzan Campbell.

Ensure that all account holder details are kept up-to-date, keep a copy of your bills to avoid any disputes, and consider using a household kitty or opening a joint account where each tenant puts in an agreed amount each week to cover energy bills and other shared costs, such as internet.

Get protection

It’s not what you think – we’re talking insurance. If you’re covered under your parents health insurance policy, you’ll only be covered until you’re 25 (or earlier, depending on the fund) so now’s the time to look into getting your own health insurance policy.

Young and healthy policyholders are more likely to pay cheaper premiums, especially if you seek out the right policy that only covers what you need. “You might be playing a lot of sport, so physio and chiro could be useful,” says Laura Crowden from private health insurance experts iSelect.

“If you don’t think you’ll use the extras, don’t pay for them. And remember also that only hospital cover delivers tax benefits: taking out an extras-only policy will not exclude you from paying the Medicare Levy Surcharge that you will be obliged to pay if you earn over $90,000 as a single,” she adds.

Be sure to check that ambulance is covered, she advises, or you could be left out of pocket after an emergency. “Not all private health insurance policies include ambulance cover and it can also vary by state.”

Don’t miss the magic 31

Not everyone knows or remembers that Lifetime Health Cover Loading (LHC) kicks in on 1 July following your thirty-first birthday. LHC is a government incentive designed to encourage younger Australians to take out private health insurance earlier. If you don’t have it by 31 but decide to take it out later in life, you’ll have to pay a two percent loading on top of your premium for every year you were without cover, and pay that extra loading for 10 years.

And also… Phone home

Don’t forget to call Mum and Dad! If your new life is going swimmingly, the folks who raised you will be happy and proud to hear about it. And if you’re seeking some frank advice, they’re a great free resource – with the added bonus of familiar home comforts. Says Justin Lee: “I have no qualms about popping home for Sunday lunch and a catch up when I can. My cooking is improving, but nothing beats Dad’s!”

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